Tuesday, September 18, 2012

Builder Confidence Index Rises in September to 6-Yr. High, With Largest 12-Month Gain in History

September 18, 2012 – Builder confidence
in the market for newly built, single-family homes rose for a fifth
consecutive month in September to a level of 40 on the National
Association of Home Builders/Wells Fargo Housing Market Index (HMI).
This latest three-point gain brings the index to its highest reading
since June of 2006 (see chart above).

“This fifth consecutive month of improvement in builder confidence
provides further assurance that the housing market is moving in a
positive direction, but there’s still a long way to go on the road to
recovery and several obstacles are slowing our progress,” said NAHB
Chairman Barry Rutenberg, a home builder from Gainesville, Fla. “In
particular, unnecessarily tight credit conditions are preventing many
builders from putting crews back to work – which would create needed
jobs — and discouraging consumers from pursuing a new-home purchase.”

“Builders across the country are expressing a more positive outlook
on current sales conditions, future sales prospects and the amount of
consumer traffic they are seeing through model homes than they have in
more than five years,” noted NAHB Chief Economist David Crowe. “However,
against the improving demand for new homes, concerns are now rising
about the lack of building lots in certain markets and the rising cost
of building materials. Given the fragile nature of the housing and
economic recovery, these are significant red flags.”

MP: The increase in the builder confidence index in
September to a six-year high of 40 is a remarkable recovery from a
reading of only 14 a year ago. The 24-point improvement in builder
confidence over the last year is the largest 12-month gain in the
history of the HMI going back to 1985, and surpasses the previous record
of a 24-point annual gain in early 1992.

13 Comments:

I have the hardest time understanding this indicator. It is a diffusion index, which means anything under 50 would signal contraction. However, the housing construction industry is steadily improving, and has been so for some time. While the rate of change is signalling this, the actual Index itself is not.

It really is quite interesting. Maybe home-builders are just pessimistic by nature.

They weren't pessimistic ten years ago! If I had to guess...I think they're having a harder time with financing and local governments are shaking them down more because tax revenue has declined. At least that's what I'm piecing together from the conversations with the guy who built our house.

Where we should see improvement, we get regulatory push back and fees.

It really is quite interesting. Maybe home-builders are just pessimistic by nature.

I guess having more than a million of unsold homes sitting in inventory looking for a chance to hit the market after the election has a way of making them pessimistic in the aftermath of one of the biggest bubbles in American history. Usually it takes more than four or five years in the aftermath of a bubble to repair the damage.

You are right. It is a confidence index set up like a diffusion. Thank you for catching me.

Still, this kind of goes to show my point about how...fickle confidence indexes can be. According to this index, more homebuilders view the market as poor than good. However, the numbers do not support that.

It is most interesting.

This is why I like data that measures actual things as opposed to perceptions. What people say are not often what they do.